Civil servant's ?500,000 fraud went unnoticed

Controls on a government legal agency were so weak that a £500,000 fraud by a civil service lawyer went unnoticed for nine years, according to a report yesterday.

The report by the comptroller and auditor general, Sir John Bourn, is embarrassing for the Treasury solicitor's department which carries out much of the government's legal work, and which oversaw the now defunct government property lawyers agency.

Richard Lillystone, a solicitor in the agency, which handled the conveyancing for government departments and public agencies, defrauded it of £542,000 from 1989 to 1998. He was discovered when a client, who had sent one too many cheques by mistake, asked for the extra cheque back and officials were unable to find it.

When confronted, Lillystone confessed. He was prosecuted and sentenced to two concurrent jail terms of 30 months.

Sir John said: "Fraud on public expenditure must not be tolerated. Weaknesses in the way the agency's financial procedures were operated enabled a substantial sum of public money to be lost. More widely, the agency's experience serves to emphasise the importance of having in place sound internal financial controls to safeguard taxpayers' money."

A spokesman for the Treasury solicitor's department admitted: "There was absence of control and lack of separation of duties. We are taking legal action to recover the money."

Sir John said the agency and the department had taken a number of steps in response to the fraud: reviewing a large random sample of cases to check for any similar frauds; requiring two signatories for all payment authorisations; and obtaining written bank account details from the solicitors of all property sellers to make sure any money was paid into the right account.

The fraud started in 1989 when a public agency for which Lillystone was acting in buying property mistakenly issued a duplicate cheque in favour of the property seller's solicitor.

Lillystone opened a building society account in the name of the solicitor but under his own control, and stole £70,000.

He later opened other accounts in the names of other solicitors, depositing more than £1.2m and pocketing the interest.

The Treasury solicitor's department won a judgment for damages against Lillystone and a court order freezing assets totalling £250,000.

A further investigation found an extra £137,000 had been paid into his false building society account.

Sir John's report said that, although there was no immediate evidence to prove this was part of the fraud, the possibility could not be ruled out.

As part of a general review, a decision was taken in November 1998 to close down the agency and it was wound up last September.